'Since You're So Rich, You Must Be Really Smart': Talent and the Finance Wage Premium
Sveriges Riksbank Working Paper Series No. 313
105 Pages Posted: 19 May 2016 Last revised: 7 Jun 2018
Date Written: June 4, 2018
Financial sector wages increased extraordinarily over the last decades. An explanation for this trend is that skill demand rose more in finance than other sectors. We use Swedish administrative data, which include cognitive and non-cognitive ability, as well as U.S. data, to examine talent allocation and relative wages in the financial sector. We find no evidence that talent in finance improved, neither on average nor at the top. A changing composition or return to talent cannot account for the surging wage premium. Our findings alleviate concerns about a brain drain, but indicate that finance workers capture rising rents over time.
Keywords: Industry Wage Premia; Talent Allocation; Earnings Inequality; Compensation in Financial Sector
JEL Classification: J24, J31, G20
Suggested Citation: Suggested Citation